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After its new, 10-year interest-only home loan raised eyebrows, AMP CEO Alexis George has defended the loan product.
AMP CEO George has addressed criticisms of its newly released 10-year interest-only home loan, saying that while the product “won’t suit everyone”, she believes it is providing a much-needed solution for older borrowers.
The loan product, which was launched last week, forgoes the need for borrowers to be reassessed after five years and covers both investors and owner-occupiers (including self-employed borrowers, retirees, and those on the cusp of retirement, if they can meet the bank’s exit strategy policy).
There is no specific age limit for the 10-year interest-only loan, as approval is based on the borrower’s ability to meet financial criteria and demonstrate a viable exit strategy, such as term deposits, shares, or investment properties, regardless of age.
The new offering has drawn some criticism from market, with some saying that opening up this interest-only loan for owner-occupiers – particularly first-time buyers – is risky as it prevents them from building equity and could lead to financial strain with potentially higher repayments after 10 years.
Others have said that there are inherent risks associated with potential interest rate hikes at the loan’s conclusion, which could leave retirees in a precarious financial position if they are unable to sell.
For example, Andrew Mirams, managing director of brokerage Intuitive Finance, argued that while 10-year interest-only terms were "a perfect product" for long-term property investments, he warned about using them for younger owner occupiers.
"First and foremost, I strongly disagree with the offering for homebuyers, especially first home buyers, as - if they can’t afford a 30 year mortgage - then the servicing for this loan is over 20 years and would reduce, not boost, borrowing power for these applications," he said.
"I can’t see how interest-only terms for people approaching retirement actually helps them pay off the mortgage," the broker continued.
"If they can’t manage the cashflow requirements then they will definitely not meet the servicing requirements over a shorter period," he added.
Mirams also queried what would need to be involved in the exit strategy to meet approval. Nonetheless, he said the product has "strong merit".
Writing in an opinion piece on The Adviser, George said that “a 10-year interest-only loan won’t be right for everyone”, highlighting that young borrowers in particular may want to “pay down their home loan as quickly as possible”.
However, she said that the loan is a necessary evolution to address the changing financial realities faced by older Australians carrying mortgage debt into retirement.
In her opinion piece, George said: “The launch of Australia’s first 10-year interest-only home loan available to owner occupiers has stirred debate and discussion – a response we welcome.
“Conversations about housing affordability and rising household debt are not only timely, but critical to the financial wellbeing and future prosperity of Australians.
“A 10-year interest-only loan won’t be right for everyone. For many Australians – particularly younger borrowers – paying down their home loan as quickly as possible remains the soundest financial advice…
“This loan won’t suit everyone, nor should it. But for the growing number of Australians entering retirement with mortgage debt, it provides a valuable option – one that reflects how real lives and real needs are changing.”
George pointed to data from the Australian Bureau of Statistics, which has revealed a significant surge in mortgage debt among Australians aged 55–64, climbing from $156,000 in 2011–12 to nearly $250,000.
AMP’s internal research further underscores this trend, with 90 per cent of Australians over 50 anticipating still having a mortgage in retirement.
The AMP CEO said that a 65-year-old transitioning out of the workforce, potentially with a remaining mortgage, could benefit from lower monthly repayments, freeing up cash flow for essential living expenses, supporting family, or delaying rushed decisions about downsizing their long-term family home.
“In circumstances like this, a 10-year interest-only loan could offer a powerful combination of financial relief and peace of mind,” George said.
“It allows retirees to hold onto the equity in their home and provides breathing room – freeing up cashflow that allows them to maintain their lifestyle, support family, or avoid rushing into downsizing decisions they’re not ready for.
“This flexibility can help retirees adjust gradually, giving them time to take stock of their new circumstances and plan for the years ahead.”
‘Financial services industry has a responsibility to evolve with its customers’
George also said that the banking sector has a responsibility to adapt its offerings, given that Australians are carrying more debt into retirement.
“As a banking industry, we can’t turn a blind eye to the changing circumstances of our customers. We have a responsibility to evolve our products and services, recognising that Australians are carrying more debt into retirement," she said.
George also said that the financial services industry “has a responsibility to evolve with its customers”.
“Doing so thoughtfully, and with the right safeguards, is not about fuelling debt – it’s about helping Australians retire with greater financial confidence,” she said.
“Conversations about housing affordability and rising household debt are not only timely, but critical to the financial wellbeing and future prosperity of Australians.
"We also believe, unequivocally, that banks must lend responsibly, with strong processes and checks in place. Lending must be about doing what’s right for customers, within a framework of robust regulation and consumer protection…
“Within this robust framework of checks and balances, AMP Bank’s new interest-only loan is designed to provide more choice and flexibility, particularly for older Australians navigating new and complex financial realities.”
You can read the full opinion piece from Alexis George, CEO of AMP, here.
What do you think about the new 10-year interest-only loan? Let us know in the comments below!
[Related: AMP Bank launches 10-yr IO loan with no reassessment]
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